There was a time, about four years ago, when the news really, really depressed me.
And I’m not talking about the cat stuck in the tree, the old lady that fell down while crossing the street, or the boy who was bullied at school. I’m talking about the non-sad news, which I found sad.
World news, local news; political news, socio-economic news.
I was one of those people who felt that the world was going crazy around him, and that he was one of the only sane ones left. Every headline, every article, every person profiled, and every editorial – they all made me frustrated to no end.
So I took the logical next step: I deleted all news apps on my phone, and stopped reading the newspaper.
That lasted for about eight months.
And then, once I had added back my news apps, I added even more.
I’m not a “news junkie,” but I try to read as much as I can about what’s going on in the city, province, country, and on the planet, no matter where the news is published.
I’ll read the Toronto Star just as much as the Toronto Sun, because I want to know what the kumbaya-singing, hippie, utopians are saying, in addition to the illiterate, uneducated, fans of tabloid journalism. Fair is fair, after all.
I started reading Fox News in addition to CNN for the exact same reason.
I don’t ever want to feel as though I’m getting one viewpoint on an issue, and I enjoy seeing a contrarian viewpoint, even if I don’t agree with it.
I mean, I have to draw the line somewhere though. I wouldn’t read Breitbart. Or Now Magazine.
The one trend I have noticed with respect to every single news outlet over the past few years, however, is that there are lines being blurred between editorial/opinion pieces, and that of general news “reporting.” For example, I write a blog, and it’s my voice, and my opinion. That’s obvious. But in classic news-writing, we’re starting to see a lot more slant, and less objective, nonpartisan reporting.
I’ve also noticed, and this is nothing new, that news is really geared toward what is more likely to be read. What’s hot? What’s a good angle? What’s more likely to make somebody click?
I’ve always felt that fear sells, and while some people shy away from things that make them uneasy, I do think that in a news cycle, negativity sells.
Over the past week, every single article I’ve read about real estate or the general economy has been negative.
Now, you’re free to tell me, “David, that’s because the real estate market is going to implode, and the economy is awful,” but I’m not convinced that both are true.
I also hold a belief, and call me naive, that Toronto requires its own news cycle, and that any news about Canada, generally-speaking, may not be directly applicable to our city.
Let me go through a few essential reads for the past week, all of which made huge headlines, but many of which I felt were over-hyped.
–
“More People Are Going Broke In Canada As Interest Rates Rise”
Let’s start with the most devastating headline first, shall we?
Going broke is about as bad as it gets, outside of illness, death, et al.
The sub-heading does make sense though, as it reads: “It’s a worrying sign for an economy that has relied so heavily on consumer-spending and the housing market to drive growth.”
Absolutely! I don’t disagree!
But here’s where things go off the rails, and once again, you’ll hear me shout, “Read the article and not just the headline!”
The article states:
An increasing number of Canadians can’t meet their financial obligations, another sign rising borrowing costs are taking a toll on household balance sheets.
The number of consumers seeking debt relief jumped 5.1 per cent to 11,320 in November from a year earlier, the Ottawa-based Office of the Superintendent of Bankruptcy reported on Jan. 4
Yikes, right?
An increase of 5.1%?
Yeah, for one month. Maybe hand-selected, maybe not.
But then further down at the bottom of the article is this:
Hoyes, Michalos & Associates Inc. estimates consumer filings in Ontario rose 1 per cent in 2018, after declining for eight straight years
Aaaaah, I see, I see, said the blind man!
So by “Canadians are going broke,” you mean that debt-seekers rose 5.1% Canada-wide in November, but in the province of Ontario, insolvency filings rose 1% in the entire year of 2018, after declining…………for eight straight years.
And it’s also worth noting that there’s virtually zero mention of causation via interest rate hikes, as the title of the article might suggest.
–
I was hooked immediately with this line:
Over the past 15 years, home equity lines of credit have been the largest contributor to Canadian non-mortgage household debt.
I thought, “Fantastic! That’s great news!”
Then I realized that the article was painting this as a negative rather than a positive.
I’m not suggesting that debt is a good thing, nor am I suggesting that people should take on debt to buy luxury cars they can’t afford, and designer-purses that they don’t need.
But I am suggesting that home equity lines of credit offer far lower interest rates than many, many other forms of readily-available consumer credit, and I’d much rather see somebody take equity out of their home at 5% than borrow from a VISA at 29%.
Am I wrong here, folks?
In 2018, I started the year by writing about financial illiteracy and the perils of predatory lenders like Money Mart and Cash Money. Now I’m seeing an article saying that HELOC’s are the most common form of non-mortgage debt, and I can’t help but feel like this article provides a misleading conclusion.
FYI, here are the stats provided at the bottom of the column:
- 27% of HELOCS users reported paying only the interest portion most months
- 49% of HELOC users in the sample used them to pay for renovations, which was the primary use of the instrument, while 22% used them for debt consolidation
- 13% said they regularly use HELOCS to meet payments on other debt, while 16% said they did this “sometimes”
- 49% of HELOC holders said their limits were over $75,000
–
“Housing Affordability To Worsen In 2019 Even As Market Cools, Says RBC”
The headline doesn’t really match up with the introduction here.
We read, “….even as market cools” in the headline.
And yet the introduction says, “Even as house prices dip or rise only modestly…”
So I guess “rising only modestly” is now the same thing as “cooling?” Maybe. Maybe that’s fair, on a relative basis.
But the bigger issue that I have with this article is the fact that it ignores everything we discuss on this blog on a regular basis.
Blog reader Kramer once posted a comment that stuck in my head about this obsession we have with comparing the median household income to real estate prices. Is that an appropriate metric anymore?
And as the article continues:
In the country’s biggest market — Toronto — the cost of owning a home will take up 79 per cent of the median household income of $71,631 by the fourth quarter of this year, up from nearly 76 per cent in 2018.
This ignores two major facts:
1) Not everybody who works or plays in Toronto owns in Toronto.
2) Some people choose to, or have to, rent.
This article seems to assume that everybody owns, and everybody owns in Toronto.
As we have discussed at length on TRB, there is no place on the planet where home ownership is at 100%. So perhaps the assumption that median household income should relate to home ownership rates is flawed, since (egad!) people who make more money are more likely to own homes.
Then comes this nugget:
In 2019, 18 months into the central’s bank’s hiking cycle, the average household will pay about $1,000 more to service principal and interest obligations. “That would represent a 7.6 per cent jump from 2018 — a tough pill to swallow for many.”
Completely offset by this:
RBC forecasts that the average disposable income per household before debt-service payments will grow by $2,300 this year. That means after Canadians service their debt, the average household will end up with $1,300 more in 2019.
–
“Canadian House Prices To Drop As ‘Huge’ Wave Of New Homes Arrives: Report”
Here again is where I differentiate between “Canada” and “Toronto.”
This “analysis” begins with a breakdown of the unsold inventory in Vancouver, and provides this exceptional piece of cutting-edge insight, never available anywhere else throughout the history of modern economic thought:
“As has been typical of historic real estate cycles around the world, new supply will reach the market just as demand is falling.”
Well, no kidding.
But I can’t seem to put two and two together here.
After we read that Canada is about to be “flooded” with a “huge amount” of new homes, we aren’t given any information about Canada.
We are given this quote by an economist I have never heard of: “Canada has been undergoing a construction boom.”
Okay, great. Thanks.
Sooooo……….where are the stats to back this up?
This is the only thing we are given that contains an actual number:
If the percentage of unsold new homes in Vancouver remains what it is, the number of unsold houses on the market will double in the metro area over the next two years as 40,000 new homes come on the market
Okay, so Canada is about to be “flooded” with a “huge amount” of new homes, because of a “construction boom,” and the numbers used to back this claim up are unsold units in Vancouver?
What the actual eff.
Then this:
The situation isn’t quite so dire in Toronto — yet. Just one per cent of new homes in the area sits unsold, compared to 7 per cent in Vancouver. But Brown expects Toronto to follow in Vancouver’s footsteps this year.
Oh, I see, so Vancouver’s ‘problem’ is approximately 700% of Toronto’s in this one particular statistic, but yet the expert “expects” Toronto to follow.
Got it.
And this, again, is based on, what, exactly?
That’s rhetorical, because the article then abruptly shifts focus to somebody who suggests that a housing shortage exists.
So in the end, this is the worst headline-to-reality ratio of them all.
This headline says that “Canadian House Prices To Drop,” but offers no evidence as to why.
This headline says a “Huge Wave” of new homes is arriving, but has ZERO MENTION of new homes; only unsold inventory in Vancouver, and the line, “Canada has been undergoing a construction boom” from some random economist?
How goddam irresponsible is this headline?
I’m sorry, you can tell me that I’m a real estate agent who makes his living selling homes, and that I’m biased, and that I’m a snake-oil salesman, and that I’m a perennial bull, but tell me I’m not wrong about that headline. Tell me that it’s not exceptionally misleading and contains nothing to back it up?
What bothers me about this, as I have mentioned before ad nauseam, is that most people (to their own detriment) don’t read the body of newspaper articles; they only read headlines. Because to read the body of a newspaper article would take time away from looking at photos of your friends’ lunches on Instagram, comparisons of portraits from 2008 to 2018, and clicking ‘like’ on a photo of an egg.
God damn, I’m turning into an old man.
And fast…
–
Here are some other choice reads from the past week, in case anybody is stuck on the TTC right now and have run out of Insta-Stories…
“Many Young Professionals Leaving Vancouver Over High Cost Of Housing”
“Trudeau Says Housing Reforms Means Fewer Overextended Canadians”
“AirBnB Draining 6,500 Homes From Toronto Housing Market, Group Says In New Report”
“Policy Decisions, Interest Rates Slowed The Real Estate Market, And They’re Needed For A Rebound”
Appraiser
at 8:45 am
Very nicely summarized, David.
“Fear Sells” has been the motto of the bear/clowns for at least a decade.
Professional Shanker
at 3:03 pm
Funny because “Fear sells” was a motto over the past decade on the way up as well.
Buy now or you will be priced out forever
Buy a place for your kids or they will never afford to own
Double edged sword!
Appraiser
at 7:26 am
Whataboutisms, cliches, and tortured metaphors. Got it.
Kyle
at 9:22 am
As the saying goes “if it bleeds it leads”. More so today than ever, with everyone fighting for clicks and advertisement dollars. Headlines need to grab attention, in order for the platform to make revenue.
It is very clear in many cases that real estate writers aren’t setting out to write about “the market”, using good old fashion investigation, data gathering, then formulating a view based on their findings. It is clear many of them are setting out to write a bearish article (which allows them to come up with attention grabbing headlines). These articles start with a bearish thesis and then solely look for bias confirming quotes and data. One of the best hints that what you’re reading is this brand of slanted tripe, is if they resort to including any quote from anybody who works at Capital Economics, who seem to care far more about selling their bearish sound bites to get their name out, than they do about ever getting a forecast right.
Chris
at 9:32 am
More people are going broke in Canada as interest rates rise:
“So by “Canadians are going broke,” you mean that debt-seekers rose 5.1% Canada-wide in November, but in the province of Ontario, insolvency filings rose 1% in the entire year of 2018, after declining…………for eight straight years.”
The article says right in the headline, more people are going broke in Canada. Not “Canadians are going broke”. Key word here is “more”, which is true of both Canada, and Ontario (from the Hoyes Michalos & Associates Inc. data).
“And it’s also worth noting that there’s virtually zero mention of causation via interest rate hikes, as the title of the article might suggest.”
Beyond the obvious correlation of bankruptcies rising as interest rates rise, the article mentions interest rates multiple times.
“We’re seeing a bump, and in some provinces that bump is significant,” David Lewis, a board member at the Canadian Association of Insolvency and Restructuring Professionals, said by phone from Edmonton. Lewis blamed economic uncertainty, rising interest rates and softening housing prices.”
“In a statement on its website, the insolvency firm predicts filings in the nation’s most-populous province will increase by “a minimum” of 2 per cent to 5 per cent in 2019, and may jump as much as 8 per cent “if interest rates continue to rise and housing prices fall,”
The Bank of Canada also commented on the situation a few days later, and the role interest rates play.
“On bankruptcy statistics, I understand that they have picked up,” Poloz said when asked about the recent figures. “And it wouldn’t be surprising to see things pick up a little bit when interest rates have risen.”
“A Quarter Of Canadians With Home Equity Lines Of Credit Are Paying Only The Interest On Their Loans: Survey”:
“But I am suggesting that home equity lines of credit offer far lower interest rates than many, many other forms of readily-available consumer credit, and I’d much rather see somebody take equity out of their home at 5% than borrow from a VISA at 29%.”
Obviously a lower interest rate is preferable. But that doesn’t consider the comparative balances. Right in the article it explains that the average HELOC balance at federally regulated banks is $65,000. A quick search found that the average credit card debt was $3,954 (2016 data). The 29% interest rate will swell the balance of the credit card debt a lot faster than the 5% HELOC debt, but a $4,000 debt is going to be a lot more manageable for most households than $65,000, at least before it is given time to grow to an unmanageable level.
There’s also the issue, as the agency suggests, that many people who are taking these loans simply don’t understand how they work. I posted the full report yesterday, which explores their methodology for determining this, as well as the other statistics they found.
“Housing Affordability To Worsen In 2019 Even As Market Cools, Says RBC”:
“So perhaps the assumption that median household income should relate to home ownership rates is flawed, since (egad!) people who make more money are more likely to own homes.”
Seems that Ben Myers, of Fortress fame, agrees with you, previously stating “What if house prices are forever detached from economic fundamentals – has anyone thought of that?”
Although, then there are a lot of groups that disagree with your assessment. From Demographia’s recent study:
“The Median Multiple is a house price to income ratio that is widely used for evaluating housing markets. It has been recommended by the World Bank and the United Nations and is used by the Joint Center for Housing Studies, Harvard University. Similar house price to income ratios (housing affordability multiples) are
used to compare housing affordability between markets by the Organization for Economic Cooperation and Development, the International Monetary Fund, international credit rating services, media outlets (such as The Economist) and others.”
Clearly RBC also feels it is important, or they wouldn’t report on it.
I would also argue that people who make more money have always been more likely to own homes, hence why household income to home price ratio is compared to historical norms.
But, I suppose at the end of the day, it’s a matter of opinion. I personally agree with RBC, the World Bank, the UN, Harvard, the OECD, the IMF, The Economist, etc., in believing that income has an impact on home prices. Others will agree with Kramer and Ben Myers, that maybe it doesn’t.
As for that last article, really it should just mention Vancouver in the headline. Most of their data and conclusions are about that city. Not sure why they extrapolated to the entirety of Canada, other than perhaps to get clicks from outside the Lower Mainland?
Appraiser
at 10:08 am
If simplistic bi-variate relationships like price to income and price to rent ratios have proven worthless when analyzing the market, then they are overly simplistic and therefore worthless.
Chris
at 12:47 pm
Who has proven them worthless?
Take a look at RBC’s Housing Affordability Report:
http://www.rbc.com/economics/economic-reports/pdf/canadian-housing/house-dec2018.pdf
Toronto hovered around its long-term average from ~1992 to ~2014.
For much of the 1990s and early 2000s, ownership costs as a % of median household income was slightly below the long-term average.
Then, in 2007, it increased, but still remained relatively close to the long-term average up until 2014.
It was at this point, ownership costs as a % of median household income took off, to where it currently sits, near an all-time high.
This timing also coincides with many of the bearish posters here (myself, Shanker, Bear, etc.) beginning to feel that real estate was overvalued. Those calling it overvalued circa 2006 were doing so as ownership costs as a % of median household income sat almost exactly on their long-term average.
But you’re entitled to your opinion. If you feel the metric is worthless, that’s your prerogative. From my standpoint, I’m still far more inclined to believe the organizations I listed above, and thus place weight on the median household income to home price ratio.
Appraiser
at 1:56 pm
Again. Simplistic analysis of a complicated subject like real estate, that disregards important variables such as interest rates, supply, demand and immigration is prone to be highly inaccurate, which it is.
Chris
at 2:08 pm
Suggest you read RBC’s methodology.
“The RBC Housing Affordability Measures show the proportion of median pre-tax household income that would be required to service the cost of mortgage payments (principal and interest), property taxes, and utilities based on the average market price for single-family detached homes and condo apartments, as well as for an overall aggregate of all housing types in a given market.”
Interest rates are clearly included. Supply and demand, being crucial components in setting average price, are included. Immigration, being a component of demand, is therefore also included.
If you’re going to claim that home price to income ratios are worthless and inaccurate, please provide some concrete support for this assertion.
Simply repeating your opinion on the matter again and again does not constitute evidence. Lashing out, and calling the bears and RBC a bunch of clowns would not qualify either.
Housing Bear
at 3:08 pm
Again, terrifying to think that individuals with this simple level of analysis are responsible for valuating the underlying securities that back a debt load larger than our economy.
Jimbo
at 7:42 pm
When completing an analytics project on large data sets it is the standard to simplify by limiting the variables IOT make proper predictions. Too much correlation in the data set will skew the results.
Jimbo
at 7:45 pm
Not saying household income should be the variable of choice to determine affordability…..
Just limiting the the variables is the proper way to predict future outcomes using big data
crazyegg
at 9:40 am
Hi All,
I would have to agree somewhat with Appraiser.
The RBC study that is mentioned here is a simplistic metric that does not take into consideration the total (future) demand of housing.
New Permanent Residents (over 1 million expected within the next 3 years) coupled with International Students and Workers will bump demand for housing (buying and renting).
These newcomers have to live somewhere…
Regards,
ed…
Chris
at 9:59 am
Crazyegg/ed, RBC’s metric is not meant to fully prognosticate what the future of real estate may nor may not hold. Expecting them to correctly measure the total future demand, total future supply, and other future variables, then present this in a metric, is far too tall an order.
They are simply presenting the data as it is. Total ownership cost as a percentage of median household income, along with the historical results of this assessment.
As I’ve said previously, we are all entitled to our opinion as to if you place weight on this metric or not. Personally, I align with the experts at the organizations listed above. Others may align with Ben Myers, Kramer, Appraiser, etc.
J
at 10:25 am
“As we have discussed at length on TRB, there is no place on the planet where home ownership is at 100%. So perhaps the assumption that median household income should relate to home ownership rates is flawed, since (egad!) people who make more money are more likely to own homes.”
Home ownership may not be 100%, but the number of people living somewhere is 100%. Even prices of homes that are not owner occupied (that is, rented out) are still driven by economic fundamentals such as household income and wealth. These fundamentals are a proxy for the ability of renters to pay their rent, which in turn correlates to prices in the long term, as rational investors demand an appropriate ROI.
Perhaps an argument like this could be made about a certain sub-class of housing. For example, detached houses are generally more desired and might be only occupied by the top X% of income earners or wealth holders, generally speaking. In that case it would still make sense to look at fundamentals, but instead of median values (50th percentile) you could look at a higher percentile.
Derek
at 1:35 pm
On a lighter note, why are there no predictions in a blog post with the headline, “Are There Any ‘Positive’ Headlines Coming For Real Estate?”??? Misleading headline!! I kid. Happy New Year!
Derek
at 4:11 pm
I found a “positive” real estate headline:
“RBC cuts 5-year fixed mortgage rate, other banks expected to follow”
Chris
at 4:30 pm
“RBC set the trend today in lowering its “special offer” 5-year fixed rate by 15 basis points, from 3.89% to 3.74%…It also jacked up its variable rates a hefty 25 bps. The bank’s 5-year variable leapt from 3.30% to 3.55% this morning, which will come as a surprise to most people.”
https://www.ratespy.com/a-major-bank-finally-drops-5-year-fixed-rates-01167890
Appraiser
at 8:32 am
…only 17% of insolvent debtors own a home…”
https://www.hoyes.com/press/joe-debtor/high-risk-mortgages/
Chris
at 8:48 am
“High home prices, rather than contributing to bankruptcies and proposal in Ontario, are temporarily masking a future financial risk…Those not filing insolvency today turn to other options, including debt consolidation and home equity loans. However, if these homeowners continue to build debt or housing prices fall, they will become the next group of insolvent homeowners.”
That 17% figure is from their 2017 survey, examining 2015-2016.
Appraiser
at 9:15 am
Bottom line: Renters are responsible for over 80% of bankruptcies.
You wanted data, now you don’t like the data?
Really weak.
Chris
at 9:31 am
“If you’re going to claim that home price to income ratios are worthless and inaccurate, please provide some concrete support for this assertion.”
Sharing 3-4 year old data on the proportion of renters vs. buyers filing for bankruptcy and consumer proposal with one insolvency firm does not at all meet the criteria of what I asked for.
Appraiser
at 9:35 am
Even weaker.
Chris
at 9:46 am
Nope, just simple fact. Sorry that you’re having such a hard time with this. Let me try to break it down for you:
I asked you for evidence, beyond just your opinion, as to why a metric was useless. You provided completely unrelated data. When your error was pointed out to you, rather than seeking to correct yourself, you, yet again, resorted to rudeness.
As David put it back in December:
“And then when they’re wrong, they double-down, get ruder, meaner, and provide less evidence”
Sound familiar?
Housing Bear
at 9:52 am
Most of that article is about how homeowners are going to be in trouble soon.
Also, insolvencies and bankruptcies have been at record lows because for a homeowner to go insolvent or to have to declare bankruptcy over the last 10 years (especially 2015-2017) would have taken some extraordinary incompetence. The value of your property was going up 10-30% YOY over that time and banks were willing to lend to anyone. Just refinance or sell and walk away with money in the bank.
Im actually shocked at that 17% figure for 2015-2016 period and even more so for the 24% in the 2013-2014 period. Goes to show how many risky households are out there. Glad I dont have to worry about them bring the value of my property anymore
Appraiser
at 10:37 am
Those ratios are a supposed indicator of overvaluation, yet for over a decade prices continued to rise. That makes them inaccurate.
I’ll put the onus on you to prove otherwise.
Appraiser
at 10:43 am
It’s really simple @ Housing Bear. I wrote in a previous post that stats show that most bankruptcies are renters.
Now you have the stats.
Chris
at 10:54 am
Scroll up, appraiser. We have already discussed this:
“Toronto hovered around its long-term average from ~1992 to ~2014. For much of the 1990s and early 2000s, ownership costs as a % of median household income was slightly below the long-term average. Then, in 2007, it increased, but still remained relatively close to the long-term average up until 2014. It was at this point, ownership costs as a % of median household income took off, to where it currently sits, near an all-time high.”
RBC’s metric indicated noteworthy overvaluation beginning in 2014. Not decades ago.
Do you have any additional evidence, beyond your personal opinion and flawed interpretation of the metric?
Housing Bear
at 11:30 am
I dont think anyone here would disagree with the statement that renters would make up a higher share of total insolvent debtors than homeowners. Even when shit finally hits the fan, there will still be more insolvent debtors that are non owners vs owners, it will just be higher than 17-24%. While the head of CMHC and several big bank executives have come out saying that they are now renters, the non owner group will always be higher because the poorest and most financial illiterate groups of society will never be owners. This isn’t some big revelation.
But you made that point on Mondays posts as a rebuttal to Chris pointing out some stats on HELOCS. My rebuttal was how many renters have HELOCS? Thought so……….
The funniest thing here thought is that the article you shared to prove your claim, articulates my biggest concern perfectly. That is the debt binge homeowners have been on, and the pressures that are building for them. As long as the price of your home continues to increase you can survive as a homeowner even if you have been living beyond on your means. Its once those paper gains stop or revert that we will see the true issues in the home owner segment. People have been using their HELOCS to pay off their credit cards and even to make mortgage payments. What happens to them when their HELOC is tapped out?
Appraiser
at 12:04 pm
“In 2011 when there were 21,000 new condo sales it was “too many sales, future oversupply” – in 2018 when there is 21,000 new condo sales it is “the low sales activity and low construction activity will put a damper on Canadian GDP”
~Ben Myers
The bear narrative is getting really old.
Chris
at 12:16 pm
What’s getting old is your inability to carry on any kind of civilized debate.
The rude retorts, lack of concrete support for assertions, and slinking away from topics when proven wrong is very stale.
While others here make an effort to engage in discussions, you drag the entire level of this blog down.
Most people would rightly be embarrassed to carry on like you do. It’s childish, toxic, and more suited to low-brow forums, like the comments section of YouTube.
Try to be better.
BJA
at 1:20 pm
“…low-brow forums, like the comments section of YouTube”
Or that of GreaterFool. Even Garth Turner is appalled at the vitriol spewed by most commenters on his site.
Chris
at 1:47 pm
Exactly. David has repeatedly said that one of the best parts of this blog is the commentary that readers add, through informed and well-mannered debate:
“Take any online publication out there, and show me a higher level of education, intelligence, and respect among the people who comment. I dare you.”
Calling other commenters rude names, repeating tired tropes (“Where’s the crash?!?!”), failing to support questionable assertions, fleeing from a losing argument and jumping to another topic, none of these behaviours demonstrate education, intelligence, nor respect.
Appraiser’s posts all too often do nothing beyond diminishing one of the best parts of this blog.
Appraiser
at 1:26 pm
Weaker still.
Chris
at 1:34 pm
You continue to prove my point.
Be better.
Housing Bear
at 1:47 pm
I actually feel kind of bad for Appraiser. He really just is a lacky in this whole thing. From about 2013 onward, Im sure the banks preferred appraisers that would give the high quotes so that they could push their loans out. A prudent traditional sane appraiser probably didn’t get jobs for very long in that market. I bet our poor old friend here just assumed that if the banks want him to give the high quote, and they are willing to make loans based on those values then it must be so. After all, our banks were praised for the prudence during the global financial crisis.
Now the poor guy is all in on RE, he is starting to see some cracks in the foundation (last few months he has probably had to appraise a few properties below what someone paid) and now he is desperate for some sense of control. He thinks if he can come here and chase the bad news bears away that somehow his investments will be ok
Chris
at 1:58 pm
He does seem to have become increasingly hostile since the GTA market’s downturn and subsequent stagnation from Spring, 2017 onward. If he’s heavily invested in cash-flow negative real estate, and banking on continued appreciation, I could see how the past ~18 months would be stressful.
Appraiser
at 2:29 pm
Somebody call a Wambulance already.
Chris
at 3:54 pm
Yet more evidence of your inability to converse in a civil manner.
David, you say you greatly value the education, intelligence, and respect from the readers of your blog. Why then do you continue to tolerate appraiser’s childish outbursts?
As I said, they do nothing but diminish this forum, and display none of the characteristics you claim to venerate. This behaviour will deter others from engaging in rational discourse, and will inevitably invite similar toxic commentary in response.
Batalha
at 3:38 pm
What I’d like to know is how many households are using a HELOC as a substitute for a reverse mortgage, i.e. borrowing on a regular basis for day-to-day living expenses, thus steadily building up the balance owing, but not intending to pay off a cent (other than the usually mandatory monthly interest payments) until they sell their home.
For example, take a childless couple in their mid-seventies who own (outright) a modest three-bedroom house in central(ish) Toronto, say Pape Village or the Junction, currently worth around $850,000. Their modest RSP/TFSA investments have run out after providing about $20,000 annually for the past ten years to supplement their OAS/CPP and perhaps a small pension. To replace that $20,000 they take out a HELOC, intending to let the balance grow for let’s say thirteen years, at which point they’ll be in their late-eighties and figure to sell their house, paying off the HELOC, whether to downsize, enter a retirement home, or whatever.
For simplicity’s sake, let’s assume they obtain a product like the Seniors HELOC (offered by a company founded by financial columnist Rob McLister) which allows the monthly interest payments to be “paid by” the HELOC (a process the company terms “payment capitalization”) thereby replicating a reverse mortgage, but at a much lower interest rate (currently 4.20% vs. CHIP’s 6.24% variable rate) while allowing for regular “as required” withdrawals rather than obtaining a lump sum at the outset.
Assuming the interest rate averages 7.0% over the next thirteen years (well above where it is now) they would owe between $420,000 and $440,000 (depending on when exactly their regular monthly or quarterly withdrawals are made) which, I hope everyone will agree, is unlikely to be anywhere near what their home will be worth in 2032.
I don’t doubt that many people feel this plan would be reckless, irresponsible, what-if-X-happens, you-can’t predict the future, and so forth, but if they are reasonably disciplined in their spending habits (BION, there are people like this out there), unlocking a portion of their home equity in this way has no real downside, absent an apocalyptic crash in Toronto real estate (and even then, anything less than a 50% crash from current levels would still leave them with at least some equity). And at any point along the way, they would always have the option of selling/downsizing or transitioning the HELOC into a conventional reverse mortgage should they choose to do so.
All this being said, I doubt many of the “pay interest only” HELOC holders fit this description, but it would be enlightening if someone were to dig deeper into these and similar issues rather than simply churning out yet another “HELOCs/reverse mortgages are the devil’s work” article.
Chris
at 3:56 pm
Batalha, the full report is available to read here:
https://www.canada.ca/en/financial-consumer-agency/programs/research/home-equity-lines-credit-consumer-knowledge-behaviour.html
It may not entirely answer your question, but perhaps it will at least shed some more light on it.
Batalha
at 5:24 pm
Great, thanks. The more “in the weeds” it (hopefully) is, the better.
Jimbo
at 11:01 pm
What 60+ year old has TFSA’s? They really only benefit those that were in their 40’s when they came out.
Libertarian
at 11:00 am
Every person should have a TFSA. Any money you can shelter from tax is a benefit. It doesn’t matter whether you’re 18 or 88. It’s more money in your pocket and less in the government’s.
Everybody talks about how a primary residence has tax-free capital gains, but so does a TFSA.
Batalha
at 1:55 pm
Oh Jimbo, do your homework.
TFSAs are the only tax-sheltered savings option for someone over 71 years of age, who can no longer make RSP contributions (unless his/her spouse is still under 72).
Also, TFSA withdrawals do not count as income for the purposes of government assistance programs such as the Guaranteed Income Supplement, whereas RSP withdrawals do count as income, an important consideration for lower income Canadians, senior or otherwise.
And someone with low or no “earned income” (e.g. primarily living on OAS, CPP, pension income, investment income, etc.) accumulates no RSP contribution room whereas he/she receives $6,000 annually in TFSA contribution room (as of 2019) and will have accumulated at least $63,500 in contribution room ($127,000 for a couple) since the program was initiated in 2009 (which can be carried forward indefinitely).
Plus, when you make a withdrawal from a TFSA, the amount withdrawn is added back into your future contribution room (as of the next calendar year) whereas RSP withdrawals have no effect on your available contribution room.
I may have overlooked other TFSA qualities that can benefit people of all ages, but the salient point here is that most Canadians, Jimbo apparently included, simply do not understand TFSAs.